Diesel stalls while hybrid surges in fleet

istock_Adamo Di Loreto

19th Jan 2016

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Diesel could be dethroned as the fleet world king after the government’s decision to extend the 3% benefit in kind (BIK) until April 2021, which may lead companies to consider alternatives such as hybrid.

Hybrid has now emerged as a contender to diesel in the fleet market due to attractive government grants and the lower BIK.

George Osborne confirmed in the Autumn Statement that the 3% diesel levy was staying in the aftermath of the VW emission scandal. The levy was expected to have been dropped in April.

The government will re-evaluate the 3% BIK hike in April 2021 when EU wide testing should ensure diesel vehicles meet air quality standards. The continuation of the diesel levy will raise an additional £1.36bn over the next five years. Until then, drivers and companies that changed their vehicles on the proviso that the 3% levy was going to be removed are now set to incur substantial costs. Marcus Puddy, managing director of Puddy vehicle solutions (PVS), said: “Lots of companies will have a fair amount of additional costs going onto their bottom line if they believed that they were going to get a saving.”

Companies may now reassess what vehicles they add to their fleets since they will suffer 21% BIK. Instead, Puddy said: “They could have got themselves a hybrid, which would still have delivered the same value in miles per gallon and provided a lower BIK but they didn’t do that because they thought the 3% levy was going to disappear, that driver is now disadvantaged.”

Hybrid accelerates in fleet

Hybrid vehicles suddenly look more attractive to companies. Plug-in cars currently boast generous incentives such as grants up to £5,000. The government has announced that the grant will fall by up to £2,500 from 1 March. “Although they have chosen to half the grant, because they have retained the 3% levy on diesel, from a benefit in kind tax, the plug-in hybrids become a decent alternative,” said Puddy.

Trending

Hybrid vehicles have emerged as an alternative due to manufacturers making the vehicles available in more ranges, and the government grant on plug-in vehicles can offset some of the higher capital cost. The government grant only applies for vehicles that have a have a lead that goes into an electric point.

Bolstered by the government’s plug-in grant, the switch to hybrid has been seen by record plug-in registrations reaching 28,188 in 2015, a 94% surge compared to the previous year. Last year’s growth overtakes the past five years’ totals combined, which was 21,486.

The Nissan LEAF and the Mitsubishi Outlander tops the registration lists, with the latter up 118% on the previous year. Lexus, BMW i3 and more car manufacturers rolling out hybrids, so Puddy believes hybrid vehicles will start to manifest themselves onto fleet lists.

However, Alastair Kendrick, tax director at MacIntyre Hudson, warned hybrids might be a “false economy”. “Hybrid obviously saves money when you are driving around town. When you are driving on motorways, the diesel/petrol engine kicks in, and that might not be economic.

“So what we are finding is people taking hybrids because it is cheaper, but the type of mileage they are doing, the car is not running as a hybrid, it’s running as a petrol or diesel because they are always on the motorway.”

Diesel dethroned?

Had the government taken away the 3% levy diesel would remain king. So does this spell the end of diesel? Puddy believes this year will be a pivotal year for diesel. But from anecdotal evidence, he said diesel still takes up 90% of fleet, and hybrid trails behind with a relative small percentage.

“Diesel is prominent in the van market. For cars, diesels will still be an affluent provider within that park, but I also think companies need to consider alternative vehicles available to them like hybrid vehicles,” said Puddy.

What do you think? Is diesel running out of gas as a company car, and will hybrid continue to electrify the company car market?